Securing funding for Gahcho Kué supplies
Mountain Province negotiates a loan for ice road deliveries North of 60 Mining News – January 7, 2022
Last updated 1/13/2022 at 3:06pm
Mountain Province Diamonds Inc. Dec. 31 provided details of a proposed US$50 million financing arrangement with Dermot Desmond, the Canadian diamond mining company's largest shareholder.
Mountain Province owns a 49% interest in the Gahcho Kué diamond mine in Canada's Northwest Territories, and De Beers Canada Inc. owns the other 51%.
Operating a mine like Gahcho Kué in Canada's North requires that all major supplies for the year are procured and delivered via an ice road during the winter months, leading to higher working capital requirements in the first half of the year.
Still recovering from nearly two years challenged by COVID-19 restrictions and protocols, including temporary closure of diamond trading floors during 2020, Mountain Province is seeking cash to help fund its portion of these supply deliveries.
In the proposed arrangement, Desmond envisions a US$50 million financing package that is subordinate to existing bonds. This new debt, as currently offered, would bear an interest rate of 8% per annum, paid semi-annually until Dec. 15, 2022. Following this date, the interest rate would be 2% above the margin on the second lien notes, then outstanding. The maturity date of this new debt would be Dec. 15, 2027.
"As we drive towards the broader solution to the bonds maturing on Dec. 15, 2022, the confidence of our largest shareholder will be critical in bringing this matter to a successful conclusion," said Mountain Province Diamonds President and CEO Mark Wall. "The macro diamond market is also in our favor as we see the demand for Gahcho Kué diamonds continuing to rise as we fill the supply gap opened up by the depletion of the closed Argyll mine inventory."
Argyle was a Western Australia diamond mine operated by Rio Tinto that was closed in 2020, after 37 years of operation, and delivered its last diamonds to market late last year.
Mountain Province points out that it has an undrawn US$25 million revolving credit facility that matures on March 31 at its disposal. The company expects to utilize the funds available under this facility in the coming weeks as the 2022 winter ice road to resupply the Gahcho Kué mine gets underway.
As a part of the new financing package, 41 million warrants exercisable into Mountain Province shares at C78 cents each are contemplated to be provided to a financier, which is expected to be Desmond or an entity ultimately beneficially owned by him.
Though the COVID-19 pandemic has created challenges for Mountain Province and Gahcho Kué, which reached commercial production in 2017, the company says there is enormous potential for future growth.
"When looked at as a whole, we have a fantastic operating asset Gahcho Kué, in Canada, as well as some 107,000 hectares (264,400 acres) of highly prospective ground which is 100% owned by Mountain Province Diamonds and completely surrounds the existing mine infrastructure, setting up the foundation for a profitable and long-life mining company," said Wall.
To realize this long-term vision, however, the company needs to get 2022 supplies delivered to the Northwest Territories diamond mine while the ice roads are still frozen.